J Real Estate Finan Econ (2012) 44:153–166
Distressed Properties: Valuation Bias and Accuracy
Shuang Zhu · R. Kelley Pace
Published online: 16 November 2010
© Springer Science+Business Media, LLC 2010
Abstract Using New Orleans foreclosure data, where each property has three
appraisals (borrower, lender, and referee), we are able to investigate the
factors affecting appraisal bias and accuracy for distressed properties. Un-
conditional analysis shows that on average lender appraisals are higher than
referee appraisals, while borrower appraisals are lower than referee appraisals.
Much of the bias could be explained by various client and appraiser character-
istics. The relation between the client and the appraiser affects valuation bias.
Customer employed appraisers tend to give more client friendly valuations
than their court appointed counterparts. However, experienced and licensed
appraisers render less biased valuations. The appraisal bias does not appear to
depend on neighborhood and demographic characteristics. In addition, expe-
rienced and licensed appraisers provide materially more accurate valuations.
Unlicensed, inexperienced appraisers have an error rate approximately four
times worse than licensed, experienced appraisers.
Keywords Appraisal bias · Appraisal accuracy · Distressed property ·
S. Zhu (
) · R. K. Pace
Department of Finance, E.J. Ourso College of Business Administration,
Louisiana State University, Baton Rouge, LA 70803-6308, USA
R. K. Pace